How the stock markets work

Tue, 28 Sep 2010 10:16 am   

Benny Lee

How the stock markets work? I always explain simply through this joke:

Once upon a time in a village, a man appeared and announced to the v

The villagers seeing that there were many monkeys around, went out to

The merchant further announced that he would now buy at $20. This re

Soon the supply diminished even further and people started going back

The businessman now announced he would buy monkeys at $50! Howe

In the absence of the monkey dealer , the assistant told the villagers. “L

The greedy villagers instantly agreed. They rounded up all of their savin

Then they never saw the monkey dealer nor his assistant again, only m

Lessons to be learned:

1. Do not trust anyone who ask you to buy or sell, except for yourself, s

2. Do not be fooled by prices in the market, look at what and why price

3. Be careful of announcements (businessman now announced he would

4. Be wary of low liquid stocks where prices can be cornered (supply of

5. Do not follow the crowd (villagers)

6. If major shareholders bought back lots of shares days or weeks ago a

7. Greed is good but do not be over-greedy (villagers bought every sing

So, make sure you understand how market works or you will end up hav
ets work

ply through this joke:

d announced to the villagers that he would buy monkeys for $10 each.

s around, went out to the forest, and started catching them. The man bought thousands at $10 and as supply s

w buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.

le started going back to their farms. The offer increased to $25 each and the supply of monkeys became so littl

onkeys at $50! However, since he had to go to the city on some business, his assistant would now buy on his be

t told the villagers. “Look at all these monkeys in the big cage that my boss has collected. I will sell them to you

d up all of their savings and bought every single monkey inside the big cage.

sistant again, only monkeys jumping everywhere!

except for yourself, so you must first learn hot the market works especially if the offer is to good to be true. (Th

what and why price move (People like to see rising prices)

announced he would buy monkeys at $50)

cornered (supply of monkeys become so little)

days or weeks ago and prices are already high, they are probably going to sell monkeys!

ers bought every single monkey)

or you will end up having monkeys instead of money!

 $10 and as supply started to diminish, the villagers stopped their efforts.

nkeys became so little, that it was a rare event to even see a monkey, let alone catch it!

uld now buy on his behalf.

I will sell them to you at $35 and when he returns from the city, you can sell them back to him for $50 each!”

good to be true. (The businessman and his assistant)

him for $50 each!”